-0.97(-0.07%)

Russia Tightens Energy Grip on Turkey and Southern Europe

(Bloomberg) -- Russia is one step closer to tightening its natural-gas grip on Turkey and southern Europe just as the U.S. aims to curb the expansion of Kremlin-backed energy projects.

President Vladimir Putin and his Turkish counterpart Recep Tayyip Erdogan met in Istanbul on Monday to oversee the completion of the 930-kilometer (580-mile) underwater part of the TurkStream dual pipeline, which is set to transport Russian gas across the Black Sea to Turkey from next year. It may even stretch further, to the southern borders of the European Union.

"Such projects, and TurkStream in particular, are not aimed against anybody’s interests," Putin said at the ceremony. He called TurkStream "a bright and good example of defending one’s own national interests" and said such projects can be "constructive."

TurkStream will serve the best interests of the whole region, Turkish President Erdogan said after the last section of subsea pipe was laid in the coastal town of Kiyikoy -- about 160 kilometers from Istanbul -- and broadcast via videolink to the ceremony.

While the U.S. administration hasn’t threatened specific sanctions against TurkStream -- focusing instead on Gazprom’s other major pipeline project, Nord Stream 2 -- the Kremlin isn’t ruling out possible U.S. restrictions on the Black Sea link.

America enacts penalties in such a way that "nobody is insured against them," Putin’s spokesman Dmitry Peskov told reporters Monday ahead of the president’s visit to Istanbul.

Market Share

TurkStream will help Gazprom reach two strategic goals: reduce dependence on transit routes via Ukraine and increase its market share in Turkey, a top three buyer of Russian gas.

With the launch of the first line, Russia’s annual gas supplies to Turkey will rise by as much as 54 percent -- or 15.75 billion cubic meters -- and secure Gazprom’s place in the region’s most enticing market. Last year, the Russian giant sent 29 billion cubic meters of gas to Turkey, split evenly between supplies via Ukraine and shipments via the offshore Blue Stream line completed 15 years ago.

Turkey was the top gas consumer in southeastern Europe last year, according to data from the Oxford Institute for Energy Studies. The country’s demand reached 53.6 billion cubic meters, an increase of more than 15 percent on the previous year.

Ukraine Reliance

Once TurkStream comes online, Gazprom aims to cut shipments via Ukraine, which remains the main transit route for Russian gas despite a standoff with the Kremlin. Last year, around half of Russian gas exports outside the former Soviet Union were sent through Ukraine.

TurkStream consists of two lines running together underwater. Turkey needs to complete the onshore part of one of the links for Russian gas to start flowing to its market. If an agreement is reached with the EU on transporting gas via TurkStream, Gazprom and its Turkish counterpart, Botas Petroleum Pipeline Corp., will together build the second onshore line, also with an annual capacity of 15.75 billion cubic meters.

It remains unclear if and where the new Russian gas flows may enter the EU. Russian Energy Minister Alexander Novak recently outlined two options: Bulgaria, with further supplies sent in the direction of Austria; and Greece, with deliveries toward Italy. The Bulgarian route “has a higher priority,” he said. Yet strained political relations between Russia and the EU create uncertainties for the expansion.

(Updates with comments from Putin, Erdogan in fourth, fifth paragraphs.)

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net;Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Amanda Jordan, Rakteem Katakey